Fdi Of India

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F.D.I. In India

Business Environment

Suneel Gupta

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INDIAN Reforms-The Philosophy

Plug into theGlobal Economy

Large scale economic reforms

FDI recognised as a Growth Driver

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India – A Good Place to Put Your Money

Second Largest Emerging Market

Largest democracy –

political stability & consensus on

reforms

Liberal & transparent investment

policies

Fourth largest Economy

(PPP) - A safe place

to do business

Largest reservoir of

skilled manpower

Long-term sustainableCompetitive advantage

- High growth rate economy

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FDI

Attracting long-term foreign capital to

supplement domestic investment efforts,

particularly in infrastructure and export competitive sectors

Developing attractive Configurations of

locational advantages at global level

Promoting technology and other linkages to

enhance domestic industry competitiveness

Creating skilled employment Opportunities and Import of world Class managerial

practices

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Global FDI trends 2000

Record FDI flows of US$ 1.3 trillion in 2000 Developed world still favourite (over 75% of global

share; mainly cross-border M&A) US$ 240 billion to developing countries Developing Asia gets US$ 143 billion, of which

China and Hong Kong-China alone account for US$ 105 billion

Latin America gets US$ 86 billion WHAT WE ARE REALLY LOOKING AT IS A

SIGNIFICANT SHARE OF WHAT COMES TO ASIA

Source: UNCTAD WIR01

The “confidence” called India

One of the fastest growing economies, second only after China

Fourth-largest economy on purchasing power parity basis

3rd in investor confidence for FDI investments

India offers the best return on investment among emerging markets

“The Time is now..to be in India. This is perhaps the most optimistic I’ve felt about India in the last 10-15 years that I’ ve been coming here.” – Jeffrey Immelt

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Global Business Leaders on India

“India is a developed country as far as intellectual capital is concerned”

“India has evolved into one of the world’s leading technology centres. ”

“India can be the test bed for developing solutions for the poorest nations. ”

“India is handling the most sophisticated projects in the world. I am impressed with the quality of work”

JACK WELCH, GE

BILL GATES, MICROSOFT

GERARD KLEISTERLEE , PHILIPSGERARD KLEISTERLEE , PHILIPS

CRAIG BARRET, INTELCRAIG BARRET, INTEL

Advantage India – the growth factor Indian Economy – The 4th largest & 2nd fastest growing economy in

the world (based on PPP adjusted GDP ~ USD 3.3 tri) Estimated GDP growth (2005-06) is 8,1 % GDP composition is well diversified across sectors with robust

growth. Agriculture 22.1%, Industry 21.7% & Services 56.2%

Growth of Economy

10 year GDP growth CAGR %8.6

6.2

5.0 5.0 4.8 4.6 4.23.5 3.1 2.8

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10

Chin

a

India

Mala

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Kore

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Sin

gapore

Taiw

an

Phillip

ines

Hong

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Thaila

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Indonesia

%

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India: FDI Outlook

• 2nd most attractive investment destination among the Transnational Corporations (TNCs) – UNCTAD’s World Investment Report, 2005

• 2nd most attractive investment destination – AT Kearney Business Confidence Index, 2005– Up from 3rd place in 2004, 6th place in 2003 and 15th place in 2002

• Among the top 3 investment ‘hot spots’ for 2004-07– UNCTAD & Corporate Location – April 2004

• Most preferred destination for services - AT Kearney’s 2005 Global Services Location Index (previously Offshore Location Attractiveness Index)

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Sectoral Targets for Achieving 8% GDP Growth ( $7-8 Bn)Sector FDI Target (US$ Bn)

Telecom 2.5

Power 1.2

Financial Services 0.8

LNG & Oil Exploration 1.0

Food & beverage 0.4

Transportation 0.4

Textiles 0.3

Ports 0.3

Chemicals & Petrochemicals 0.2

Hotels & Tourism 0.2

Real Estate 0.2

Roads 0.2

Civil Aviation 0.2

Dis-investment 0.5

Total 8.9

Global Leaders from India

One of the top IT Services company in the world

World’s largest refinery plant

Largest producer of motorbikes in the world

World’s largest producer of terry-towels

World’s 2nd largest forging company with outsourcing to major car manufacturers

World leader in viscose staple fibre and 3rd largest producer of insulator

Amongst top 3 truck manufacturers in the world

World’s largest tube based television manufacturer

3rd largest producer of optical storage media in the world

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AN IDEAL INVESTMENT DESTINATIONAN IDEAL INVESTMENT DESTINATION World’s largest democracyWorld’s largest democracy

Second largest emerging market (US$ 2.4 trillion)Second largest emerging market (US$ 2.4 trillion)

Liberal Foreign Investment RegimeLiberal Foreign Investment Regime

Skilled and competitive labour forceSkilled and competitive labour force

Amongst the highest rates of return on investmentAmongst the highest rates of return on investment

Large domestic marketLarge domestic market

Independent judiciaryIndependent judiciary

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Key Economic Indicators: GDP Growth Rate (1993-94 as base

year)

5.40%

7.6% 7.8%

5.1%6.8% 6.40%

4.0%

0%1%2%3%4%5%6%7%8%9%

Gro

wth

Rat

e (%

)

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Key Economic Indicators: External sector

2226

30

63.93

17

42.2638

54.15

48.846.64

43.642.537.2

35.533.5

48.33

0

10

20

30

40

50

60

70

80

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03(ason 11-10-02)

0

7

14

21

28

35

42

49

56

Fore

ign

Exch

an

ge R

eserv

es (

US

$

billion

) Exc

han

ge R

ate

(Rs/

US$

)

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INDIA: TRACING FIRST GENERATION REFORMS• Industrial delicensingIndustrial delicensing

• Liberal FDI regimeLiberal FDI regime

• Freedom to invest & expandFreedom to invest & expand

• Simplification of investment proceduresSimplification of investment procedures

• Tax Tax rationalisationrationalisation

• Current ACurrent Accountccount convertibility convertibility

• Public sector divestmentPublic sector divestment

• WTO compatibility – Patents, etc.WTO compatibility – Patents, etc.

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The Reforms Process Ahead

Public sector divestment Public sector divestment

Cutting fiscal deficitCutting fiscal deficit

Amendments to crucial economic legislationsAmendments to crucial economic legislations

Financial sector reformsFinancial sector reforms

Labour reformsLabour reforms

Corporate governanceCorporate governance

Meeting all multilateral commitments in terms of GATT, Meeting all multilateral commitments in terms of GATT, GATS, TRIPS, etc. GATS, TRIPS, etc.

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Some Independent Studies

• JBIC Survey 2002 ranks India as the 5th most promising investment destination

•EIU’s ‘World Investment Prospects 2002’ projects steep growth in FDI inflows to India

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10 year tax holiday for developers of SEZs/ Industrial Parks 100% tax Exemption for 5 Years and 50% thereafter for two years for SEZ Units 100% Tax holiday for 10 years for

infrastructure undertakings 100% tax deduction for 10 consecutive

assessment years to undertakings providing Telecom services

INFRASTRUCTURE

INVESTMENT OPPORTUNITIESINVESTMENT OPPORTUNITIES

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Sector Present Capacity

Capacity Addition By 2006

Investment By 2006 (US $ Bn)

Power 1.1 7Lakh MW 1,11,500 MW 178

Telecom 37 M Lines 52 M Lines 55

Ports 344 MT 350 MT 7

Roads a. National Highways b. State Highways c. Super N. H.

58, 112 Kms

1,37,119 Kms

23,000 Kms

60,000 Kms 4,000 Kms

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Urban Infrastructure Service

80

INVESTMENT REQUIREMENT: US $ 347 Bn

INFRASTRUCTURE

Source: Rakesh Mohan Committee Report (1996-2006)

INVESTMENT OPPORTUNITIESINVESTMENT OPPORTUNITIES

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Integrated Townships• FDI policy

100% FDI for development of integrated townships, including housing, commercial premises, hotels, resorts, city and regional level urban infrastructure facilities such as roads and bridges, mass rapid transit systems and manufacture of building materials

• Incentives Ten years tax holiday to undertaking developing or

operating and maintaining or developing, operating and maintaining infrastructure facilities such as; water supply project, water treatment system, sanitation and sewerage system or solid waste management system

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Recent Initiatives on FDI FDI up to 100% allowed in Tea sector, including tea

plantations with prior Government approval

100% FDI permitted on automatic route in Advertising & Films

Royalty on brand name/trademark payable as percentage of net sales

Guidelines for licensing production of Arms & Ammunition notified

26% FDI permitted

3 year lock-in period for transfer of equity from one investor to another

Import of equipment/prototype allowed

Guidelines for development of integrated Townships including housing & building material notified

100% FDI permitted

minimum capitalisation norm - US$10 million for WoS & US$ 5 million for JVs

3 year lock-in period

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Rationalisation of FDI Policy

Allowed selectively up to 40%

Up to 51% under Automatic

Route for 35 Priority Sectors

up to 74/51/50% in 112 sectors under

Automatic Route100% in some sectors

Up to 100% Under Automatic Route in all sectors except

a small negative list

More sectors openedEquity caps raised

Procedures simplified

Pre 1991 1991 1997 2000 2000-05

Procedural further simplifiedNew sectors openedEquity caps raised

2006

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Investing in India – Entry Routes

Automatic RoutePrior Permission

(FIPB)

Investing in India

General RuleNo prior permission requiredInform Reserve Bank within 30 days ofinflow/issue of shares

By ExceptionPrior Government Approval needed.Decision generally within 4-6 weeks

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FDI Approval Procedure

Government Route for few sectors

Automatic Route in most Sector

RBI FIPB

No permission required, only to notify RBI within 30 days of issue of shares to foreign investors

Approval is granted generally in 30 days

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Main Sectors with FDI Equity/Route Limit

FDI equity limit-Automatic route

• Insurance – 26%• Domestic airlines –

49%• Telecom services-

Foreign equity 74%• Private sector banks-

74%

FDI equity limit - prior approval required

• FM Broadcasting - foreign equity 20%

• Defence production – 26%

• News and current affairs- 26%

• Broadcasting- cable, DTH, up-linking – foreign equity 49%

• Single Brand retailing – 51%

• Tea plantation – 100%

• Courier services- 100%

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4.84.74.0

3.4

4.6

3.0

2.2

1.0

0.60.30.1

0.00

1.00

2.00

3.00

4.00

5.00

6.00

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000-01 2001-02

Cumulative FDI Approval 1991-2002(August): US$ 76.15 billion Cumulative FDI Inflow 1991-2002 (August): US$ 30.98 billion

US

$

billion

Foreign Direct Investment Annual Inflow

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Manufacturing Sectors with 100% FDI under ‘Automatic Route’

• Cars and motor vehicles

• Refrigerator and fire fighting equipments

• Food processing

• Electronic Hardware

• Iron and steel

• Private Oil Refineries

• Agriculture tools and implements

• Fertilizers and pesticides

• Pollution control equipments

• Tyres and tubes

• Packaging products

• Construction Machinery• Domestic air conditioners• Electric motors, industrial

electric furnaces• Mining and Querying

Machinery• Steam engines and turbines • Non-metallic mineral products• Rice, oil mill machinery• Chemical machinery• Drugs and pharmaceuticals

except those requiring industrial licensing

• Medical equipments• Office computing and

accounting machinery

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Infrastructure Sectors with 100% FDI Under ‘Automatic Route’

• Electricity Generation (except Atomic energy)

• Electricity Transmission

• Electricity Distribution

• Mass Rapid Transport System

• Roads and Highways

• Toll Roads

• Vehicular Bridges

• Ports and Harbors *Hotel and tourism

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Services Sector with 100% FDI under Automatic Route

• Advertising and films• Computer related services• Research and development services• Construction and related engineering services• Pollution control and Management services• Urban Planning and Landscape services• Architectural services• Health related and social services• Travel related services• Road transport services• Maritime transport services• Internal waterways transport services

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Sectors with Restrictions on FDI

• Sectors with limits on FDI Caps– Private Banking ( 49%)– Insurance (26%)– Domestic Airlines (40%) – Basic and mobile services (49%)– Print Media (26%)– Defence production (26%)

• Sectors where FDI is prohibited– Gambling, betting, lottery– Retail Trade– Agriculture Plantation, except tea plantation

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Foreign Investment Implementation Authority (FIIA)

Provides pro-active one-stop after care service to foreign investors

Facilitates quick translation of FDI approvals into implementation

Sorts out operational problems and finds solution

Supporting mechanism

Fast Track Committees

review individual projects

review and suggest deletion of redundant procedures

simplify existing procedures

Nodal Officers for follow up of FDI cases in states

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Important Features of Department’s Web Site

Web Site: www.indmin.nic.in

All the publications and forms for seeking License, FIPB approval, etc. available in

downloadable format

Present Status of Application Submitted for FIPB and PAB Approvals are posted on the web site

Chat Facility during 1600 to 1700 Hrs on Every Working Day

Bulletin Board facility for Seeking Clarifications on Complicated Matters ( Replies sent just after one day)

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‘Dreaming with BRICs: The Path to 2050’- by Goldman Sachs

• BRICs (Brazil, Russia, India & China) economies could be larger than G-6 in less than 40 years;– By 2025 over half of G-6 size against less than 15% at present;

• India has potential to growth rate higher than 5% over the next 30 years and close to 5% as late as 2050;– Only India among BRICs to have growth rates significantly above

3% by 2050;

• Indian economy can overtake Italy by around 2017, Germany by around 2027 and Japan by 2032;

• India has the potential to raise its per capita income in US$ terms by 35 times by 2050.

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India: FDI Outlook• Rated as the best BPO destination; AT KEARNEY• Best technology licensing regime - UNCTAD’s

Global Competitiveness Report, 2003;• Rated among the most favourite investment

destinations (UNCTAD, JETRO, JBIC, Deutsche Bank, EIU, etc.)

• Major destination for foreign venture capital funds (Far Eastern Economic Review)

• Sixth most attractive investment destination – ATKEARNEY Business Confidence Index, 2003

• Also among the top 10 Tourist Destinations.

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Sectoral Distribution of FDI Inflows (1991-August 2002)

Others34%

Fuels10%

Telecom13%

Food Processing Industries

4%

Electrical Equipment

13%

Chemicals (Other than Fert.)

7%Services Sector

8%

Transportation Industry

11%

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Major MNCs in INDIAMajor MNCs in INDIATelecomAT&TSwiss TelecomDeutsche Telekom AG Motorola STET InternationalTelesystem InternationalTelstra CorpSIET InternationalConsumer GoodsFostersAB ElectroluxKelloggNestle SAPerfettiCoca ColaPepsi

AutomobileFiat AutoDaewooDaimler Benz FordGeneral MotorsHondaHyundai SuzukiToyotaVolvoTradingMetro Cash & Carry GMBHFIDIAMitsubishiSHV Macro

Auto ComponentsDenso CorporationGraziano Robert BoschCarraroSIAP S.P.A Toyota PowerPower Gen SiemensST Power SystemMiscellaneousAsea Brown BoveriBuhler*SchindlerItalcementiCerestar Holding

Chemicals & PharmaAKZO NOBEL CIBA IndiaSinco Engg.Bayer EMS Inventa AGMiningAshton American ExplorationRio TintoOil & GasHardy Oil & Gas International PetroleumSHV EnergyUnocalVan Ommeren

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